President Biden’s Climate Act: A Win for the US, for Puerto Rico and for the Planet

President Biden’s Climate Act: A Win for the US, for Puerto Rico and for the Planet

On August 16^th 20022, President Biden, signed the Inflation Reduction Act (IRA) into law, possibly the most impactful environmental legislation in the history of the United States, and without a doubt the boldest step taken by any nation to combat the existential crisis that is anthropogenic climate change and global warming. SESA, the Solar and Energy Storage Association of Puerto Rico, worked since day 1 to secure specific victories for our island within this momentous legislation. And we have good news.

Firstly, the IRA directs over $369 billion to accelerate the US transition to renewable generation sources. Full-scale solar energy and its storage, as well as the increased adoption of electric vehicles (EVs), are central aspects of the law and of the president’s strategy to lower energy costs for all American, while increasing individual, collective and global resilience.

A central innovation of the IRA the creation of the multibillion-dollar Greenhouse Gas Reduction Fund to provide liquidity to local green banks. Thanks to Act 17 of 2019, our Energy Public Policy Law, Puerto Rico already has an institution of this kind, the Green Energy Trust. This Puerto Rican Green Bank is spring-loaded to receive substantial funds once the Environmental Protection Agency (EPA) establishes certain rules. Then the Trust can begin to establish financial mechanisms that increase Puerto Rican access to energy efficiency and renewable solutions. And EPA must also establish rules for new grants for clean energy projects, EV charging stations, and green objectives, which shall eventually be implemented the Energy Public Policy Program of the PR Department of Development and Commerce.

SESA also focused its federal lobbying push on perfecting the most important tax incentive for solar power, the Investment Tax Credit (ITC). The ITC, enacted in 2005, initially covered 30% of the cost of any photovoltaic installation. In 2022 the exemption had been reduced to 24%, and would continue to be gradually reduced. The IRA has been not only restored to 30%, in some cases it can now be over 50%, and will for the first time be allowed for stand-alone energy storage. This new ITC will remain at this high level for a decade. An extraordinary achievement.

In Puerto Rico, companies like Sunnova and Sunrun, as federal taxpayers, have always been able to pass on ITC savings to their Puerto Rico customers via their Third Party Ownership model - basically solar leases- so the restoration of the ITC is good news in itself. However, SESA, supported by key organizations and coalitions, primarily Hispanic Federation, Solar Access For All, the PR Chamber of Commerce, as well as Power4PR, focused its efforts on achieving a mechanism for direct use of the ITC by citizens of Puerto Rico, the territories and others little or no federal tax liability- and that end was actually achieved it in the House of Representatives.

Although that win at the House (which was technically termed “refundable ITC”) did not survive in the reconciliation deal that was able to garner 50 Democratic votes in the Senate, the IRA does include, for the first time ever, an ITC directly usable by federally tax-exempt entities such as local governments, Indian tribes and nonprofit organizations. The US Treasury Department (USDT) will have to issue guidance rules to land the details before the end of the year, but seeing an ITC directly payable to the Commonwealth of Puerto Rico, its subdivisions and Puerto Rican non-profit entities will be an immense triumph, particularly given the fact that the latter have been critically important for the deployment of solar plus storage microgrids around the island after the scourge of María.

Federal EV incentives will also be for the first time ever available to Puerto Ricans. From a buyer’s perspective, these will be point-of-sale rebates of up to $7,500 for EVs that meet certain North American manufacturing and mineral sourcing requirements from US trading partners. USDT also has to establish specific rules, but we will see that new incentive flowing locally in 2024, accelerating the electric vehicle growth that is already evident in our island’s roads and highways.

The IRA is an incredible achievement. It will yield a radical reduction-over 40% in or before 2030- in US greenhouse emissions, beginning mitigating the terrible ecological and economic effects of our fossil fuel-based societies. 

The United States has won. Puerto Rico has won. The Planet has won.